Parties seeking financing for litigation are often unsure of the steps involved in the litigation funding process. In this informative four-part blog series, we will shed light on how the process works from a litigation funder’s perspective so you and your lawyers are better informed about the process and the issues that typically arise.
To begin with, litigation funders are not interchangeable. One important thing to keep in mind is that a litigation financing relationship typically lasts two to three years, through the resolution of the case, and will need to survive all usual complications associated with any complicated commercial dispute. This means plaintiffs seeking funding, along with their lawyers, should look for a funding partner that has both the track-record and financial resources to serve as a trusted advisor and a partner who can go the distance when an unexpected turn in the case requires revisiting the litigation budget.
When choosing a litigation funder, it is important to consider not just the funder’s track record for success, but also how long it has been in business to determine whether it has addressed thorny issues. Inquire whether the funder has been involved in disputes with claimants or their attorneys. Look at who you will be dealing with at the company. Determine whether interactions with the company will be with an individual who will approach the deal like a banking transaction, or a seasoned litigator who understands the fundamental nature of the litigation at issue and can add value as it progresses. Also consider the source of the capital being provided - is it readily available to draw down or does the funder need to make capital calls or go through other hoops to access it? Bentham IMF, for example, is comprised of experienced former litigators who understand the cadence of litigation and how to handle its associated obstacles along the often long road to resolution. Bentham IMF also has capital on hand to fund litigation fees, costs and even working capital and debt-satisfaction for claimants as soon as its diligence process is completed.
In addition to gauging a funder’s reputation, history, and capital capabilities, the most successful funding arrangements are achieved when there is a mutuality of trust and respect between the funder, the claimant and the lawyers. Anyone considering litigation financing should have these goals in mind when first approaching a funder, to determine whether the funder is the right fit. It is imperative that all parties involved have a successful multi-year partnership with all interests aligned.
Once the preferred litigation financier is selected, the next step is to reach out with a general description of the case and the funding amount sought. Funders will invariably require a non-disclosure agreement (“NDA”) before any substantive discussions occur. This is critical to the diligence process because it evidences the intent of the parties to maintain confidentiality over shared information under the attorney work-product doctrine. The current state of the law is reflected in the comprehensive federal trial court decision in Miller v. Caterpillar, Case No. 10 C 3770 (N.D. Ill. Jan. 6, 2014).
The Miller court made a number of detailed findings that track and confirm Bentham IMF’s practices, including the following: 1) the litigation funding agreement itself is not relevant to any claim or defense in nearly all cases (apart from cases involving enforcement of a funding agreement), and is not discoverable; 2) the common interest doctrine does not apply in most states to protect disclosures to funders because the parties don’t share identical legal interests; and 3) work product material is protected under a written or an oral non-disclosure agreement.
The decision in Miller followed a similar decision in Mondis Tech. v L.G. Elec., Inc., 2011 WL 1714304 (E.D. Tex. May 4, 2011). In a subsequent decision that addresses Miller, the court recognized Miller to be “comprehensive and well-reasoned,” but performed its own in camera review of the litigation finance materials. Doe v. Society of Missionaries of Sacred Heart, 2014 WL 1715376, (N.D. Ill. May 1, 2014). The Doe court arrived at the same conclusions with respect to the applicability of the work product doctrine when an NDA is in place. Based on this and other legal precedent, the importance of executing an NDA before sharing confidential or work product information with a funder cannot be overstated.
In our next post, we will review the term sheet and diligence process, including what information claimants and their lawyers should expect a funder to request and common issues that arise during the diligence period.
Visit all four parts in our how to get your case funded series:
Part One: Choosing a Funder and the Importance of the NDA
Part Two: Getting to the Term Sheet
Part Three: Presenting a Matter for Funding
Part Four: Closing and Monitoring a Litigation Finance Transaction